Google's Momentum Could Wane

There is no doubt that Google (GOOG - commentary - Cramer's Take) is the darling of Wall Street.

Wednesday's downgrade by some small shop only serves as the exception to the increasingly popular analyst game of "top my price target." But what's being overlooked in this game is that the stock's further rise isn't dependent on Google's business. It's dependent on momentum.

Since its IPO at $85 a share in 2004, Google shares have soared about 425%, to $450 a share. I admit I was on the sidelines the whole time during the move, but enjoyed watching the action, as well as the analysts race their targets ever higher. But shares are not moving higher on valuation here; they are moving higher on momentum.

Momentum consists of two important conditions:

• Positive sentiment

• Favorable market conditions

The sentiment surrounding Google over the past few months has been incredibly upbeat, but times are changing.

First off, rumors have surfaced of click fraud. Click fraud occurs when an automated script or computer program imitates a legitimate user by clicking on an ad fraudulently, to generate improper charges. Web-based ad companies, such as Google, usually charge advertisers per click. The more times an ad gets clicked, the more revenue is generated. A recent segment from CNBC's "On the Money," suggested that click fraud could account for more than 10% of Google's revenue.

Negative sentiment has also come from lawsuits that have been filed by the Association of American Publishers. These lawsuits allege that scanning and digitizing library books constitutes copyright infringement. I don't see this as a major hurdle for Google, but it does amount to negative press. Remember, it's the sentiment that contributes to the momentum of a stock price.

As for market conditions, there is plenty of evidence suggesting a mild slowdown in the economy and that consumers are at least slowing their pace, if not collapsing.

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In keeping with TSC's editorial policy, Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial.

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